Results

Inline Expectation: 1HFY14 PATAMI increased 90% YoY to a profit of RM46m, making up 47% of HLIB and consensus core earnings estimates, respectively.

Deviations

We deemed the result inline as we expect stronger 2H due to full contribution from Perdana Protector and Perdana Resolute.

Highlights

2Q14 revenue increase 24% yoy and 2% QoQ due to improvement in vessel utilisation, charter rates and income generated from Perdana Protector and Perdana Resolute. YoY, PBT margin improved from 21% to 27% due to cost cutting measures and saving from the acquisition of 3 sales and leaseback vessels.

Currently, the company has 15 out of 18 vessels under long term contacts, which represents 83% of total fleet. We understand the 2 AHTS that are currently on spot charters have extended the contract to end of FY14, further enhancing its earning visibility.

The new work barge, Perdana Emerald which will be delivered in Oct 14 is bidding for the EOR job at St Joseph field with contract duration of 2 years. In addition, Perdana has ordered 2 units of 500 men barges with an option for a further 2 units with deliveries in 1H16. We estimate one vessel to contribute RM15m (~15% of FY14 earnings) to company bottomline. It is our top pick for brownfield development play. It stand to benefit from the maintenance job on aging platform and upcoming EOR projects due to increasing demand for accommodation barge.

Perdana could potentially be removed from SC Shariah compliant list in the Nov review. Any share price weakness from this issue is a good buying opportunity given that its solid fundamental remains intact.

We are still positive on the stock in view of additional catalysts of: capacity expansion, higher utilisation from the HUCC contracts; M&A or even privatization.

Risks

Global recession hitting O&G price; Business and restructuring execution failure; and Increase in OSV supply

Forecasts

Unchanged.

Rating

BUY

Positives –

• Demand drivers improving.
• OSV supply relatively inelastic.

Negatives –

• Increased competition for growth markets.

Valuation

We maintained our BUY call with unchanged TP of RM2.18 pegged at an unchanged 14x FY15 EPS of 15.5 sen/share based on our small cap O&G multiple.

Source: Hong Leong Investment Bank Research - 20 Aug 2014